Archives For customs risk management

Historically, a customs officer’s “intuition” backed up by his/her knowledge and experience served as the means for effective risk management. In the old days (20 years ago and back) there wasn’t any need for all this ‘Big Data’ mumbo jumbo as the customs officer learnt his/her skill through painful, but real-life experience, often under bad and inhospitable conditions.

Today we are a lot more softer. The age of technology has superseded, rightly or wrongly, the human brain. Nonetheless, governments thrive on their big-spend technology budgets to ensure the safety of their economies and supply chains.

No less, the big multinational corporations whose ‘in-house’ business is no longer confined by national boundaries or continents are responsible for the generation of huge amounts of data which need to extend to the limits of their operations. When the products of such business are required to traverse national boundaries and continents, their logistics and transport intermediaries, financiers, and insurers become themselves tied up in the vicious cycle of data generation and transfer, also spanning national boundaries to ensure those products arrive at their intended destinations – intact, in time and fit for purpose. Hence we have what as become known as the international supply chain.

It does not end there. Besides the Customs authorities, what about the myriad of other government regulatory authorities who themselves have a plethora of forms and information requirements which must be administered and approved prior to departure and upon arrival of goods at their destination.

Inefficiencies along the supply chain culminate in delays with added cost which dictates the viability for sale and use of the product during delivery. These may constitute what is called non-tariff barriers (or NTBs) which negatively impact the suppliers credibility in international trade.

The bulk of this information is nowadays digitised in some for or other. It is obviously not all standardised and structured which makes it difficult to align, compare or assimilate. For Customs it poses a significant opportunity to tap into and utilise for verification or risk management purposes.

The term ‘Big Data’ embraces a broad category of data or datasets that, in order to be fully exploited, require advanced technologies to be used in parallel. Many big data applications have the potential to optimize organizations’ performance, (and here we have it) the optimal allocation of human or financial resources in a manner that maximizes outputs.

The purpose of this paper is to discuss the implications of the aforementioned big data for Customs, particularly in terms of risk management. To ensure that better informed and smarter decisions are taken, some Customs administrations have already embarked on big data initiatives, leveraging the power of analytics, ensuring the quality of data (regarding cargos, shipments and conveyances), and widening the scope of data they could use for analytical purposes. This paper illustrates these initiatives based on the information shared by five Customs administrations: Canada Border Services Agency (CBSA); Customs and Excise Department, Hong Kong, China (‘Hong Kong China Customs); New Zealand Customs Service (‘New Zealand Customs’); Her Majesty’s Revenue and Customs (HMRC), the United Kingdom; and U.S. Customs and Border Protection (USCBP). Source: WCO

A new regulation adopted by the European Parliament and the Council will allow customs to access information to track the origins and routes of cargo containers arriving in the EU to support the fight against customs fraud both at EU and national level. The Joint Research Centre (JRC) has been instrumental in the conception and adoption of this legislation as it provided the scientific evidence on the importance of analysing the electronic records on cargo container traffic.

The EU customs authorities have been long aware that information on the logistics and actual routes of cargo containers arriving in Europe is valuable for the fight against customs fraud. However, they had very limited ways to obtain such information and no means to systematically analyse cargo container traffic both for fraud investigations as well as for risk analysis. On the other hand, the ocean carriers that transport the cargo containers, as well as their partners and clients, have easy on-line access to the so-called Container Status Messages (CSM): electronic records which describe the logistics and the routes followed by cargo containers.

In collaboration with the European Anti-Fraud Office (OLAF), the JRC has worked extensively on how to exploit CSM data for customs anti-fraud purposes. The JRC proposed techniques, developed the necessary technology, and ran long-term experiments involving hundreds of EU customs officers to validate the usefulness of using CSM data. The results of this research led the Commission to bring forward a legislative proposal that would enable Member States and OLAF to systematically use CSM data for these anti-fraud purposes. It also served to convince Member States of the value of the proposed provisions.

The financial gains from the avoidance of duties, taxes, rates and quantitative limits constitute an incentive to commit fraud and allow the capacity to properly investigate in cases, such as mis-declaration of the origin of imported goods. The information extracted from the CSM data can facilitate the investigation of some types of false origin-declarations. With the new legislation an importer will no longer be able to declare – without raising suspicions – country X as dispatch/origin of goods if these were transported in a cargo container that started in country Z (as indicated by the CSM data).

The technologies, know-how and experience in handling CSM data, developed by the JRC through its experimental ConTraffic platform, will be used by OLAF to set up the system needed to implement this new legislation applicable as from 1 September 2016. The JRC will continue to analyse large datasets of CSM records (hundreds of millions per year) as these are expected to be made available through the new legislation and will continue to support not only this new regulation but to exploit the further uses of this data notably for security and safety and real-time operations. Its focus will be on data mining, new automated analysis techniques and domain-specific visual analytics methods. Source and Images: EU Commission

The following article is published with the kind permission of the author, Tapia Naula who is Principal Transport Economist at African Development Bank, based in the Ivory Coast. He is an international project manager and transport economist with experience in logistics business, research and trade facilitation. This article is a must for anyone associated with or working on the TFA on the African sub-continent, and a bit of a wake up call to those countries who have as yet done little or nothing to progress their participation.

In the World TFA Cup Asia is leading Africa 72 – 35. The first scores of the WTO Trade Facilitation Agreement are out as member countries submit their Category A notifications. Initial results of the African first series are somewhat unfulfilling. Some teams are playing defensive even if attacking tactic is the only way to win.

In December 2013, WTO members concluded negotiations on a Trade Facilitation Agreement (TFA) at the Bali Ministerial Conference, as part of a wider “Bali Package”. Among trade facilitation practitioners the Agreement was received with great enthusiasm: finally there was a legal instrument, which is concrete enough to make a difference! TFA will enter into force once two-thirds of members have completed their domestic ratification process. Section I contains substantive provisions in 12 main Articles. The members are required to categorize and notify each provision of the Agreement as either A, B or C Category. The A Category commits a country to implement the provision upon entry into force of the TFA, or one year after for LDC’s. For B-Category there will be a transitional period. C-Category provisions are allowed a transitional period, technical assistance and capacity building.

First, let it be said loud and clear: the WTO TFA is an excellent collection of modern trade and transport facilitation instruments in one folder. In developing countries its implementation would mean reforms that would save time, money and efforts for regular business people and consumers. These reforms may be painful but the countries that can do it, will be the future winners of their regional competition and they will be the ones that will most benefit from joining the global value chains. TFA is the best vehicle for poverty reduction invented so far and that is why it is so important.

In August, 2015, 14 African countries and 25 Asian countries had submitted notifications for category A provisions. Asian countries had “accepted” 72 % of all the provisions as A-Category commitments on average where the respective share of the African countries is only 35 %. On Article-level African countries lag behind on every Article except one (Table 1).

In addition to the low overall share of category A-notifications, the African notifications generally look like “random picks” of sub-paragraphs, compared to many Asian members that have commonly chosen the strategy of basically accepting the whole Agreement and making exceptions for certain few paragraphs according to their particular needs.

Were African governments well-informed of the impact and substance of each paragraph – or are they just being cautious, perhaps trying to delay the final commitment? The patterns between African and Asian countries are in any case different.

TFA includes also “low hanging fruit” – sections that require little technical expertise to be implemented. At least some of these should have been easy for member countries to accept. “Publication and Availability of Information” is one of those sections. Access to information through internet is routine and affordable. It should not require transition periods or particular technical assistance. Donors are even competing to assist governments with such low cost and high-return activities. Still, less than one third of the African Governments notified this Article.

Here are some other peculiar findings:

Out of 14 African countries only Morocco accepted “Border Agency Cooperation” as A –Category provision. Three of the others countries that did not notify it are landlocked countries;

Only four out of 14 African countries had fully notified “Freedom of Transit.” Transit challenges in Africa are probably the single most significant source of inefficiency in trade logistics;

One of the foundations of modern customs management is the introduction of Risk Management. Only 3 out of 14 African countries had notified this provision;

Only Morocco notified Trade Facilitation Measures for Authorized Economic Operators (AEO), which gives certain privileges to traders and transport operators, who show high level of compliance to regulations. One wonders why Kenya, Uganda, Rwanda, Burundi and Tanzania did not notify it as we know that an AEO program is being piloted in the East African Community;

Only Senegal notified the sub-Article on Single Window, which is probably the most important one of the whole Agreement. Senegal perhaps deserves this honor – being the first truly African-based single window country – and also representing the good practice of SW management. Yet, according to the African Alliance for e-Commerce, currently there are at least 16 other single windows either already operational or under development in Africa. Why weren’t these developments recognized?

Despite the above “peculiarities” the African situation is fortunately nowhere near as somber as the A-Category notifications indicate. There are plenty of trade and transport facilitation initiatives under implementation – and Africa is indeed “on the Move.” We should on one hand side make sure that the valuable TFA Agreement is not becoming a separate formal process alongside the practical actions on the ground, but rather a framework for coaching governments in climbing up the stairs toward greater competitiveness. On the other hand, the countries should not ignore the existing achievements. A lot has been achieved in Africa in recent years and this process should go on and gain speed. Some sub-regions, which have been less successful in this field need benchmarks, encouraging and coaching. This is where African and international organizations can play a role.

Although the direct cost of TFA implementation is relatively low, the indirect cost may be extremely high. The indirect cost concerns existing structures, which generate income for organizations and individuals, who often greatly benefit from the status quo. Some governments have entered into concessions outsourcing critical government functions such as pre-customs clearance operations and processing and submissions of declarations to customs. Western firms have efficiently seized the opportunity and negotiated deals, which guarantee profits for in many cases for decades to come. Single Windows in certain countries are good examples for these. In an unnamed Southern African country for example, humanitarian aid is exempt from taxes and duties in import. If however a UN agency for example imports a container of pharmaceuticals worth five million USD, it will have to pay for a Single Window fee of 42,500 USD! Such Ad Valorem fee arrangements are against the TFA. Such concessions are often built inside structures, which profit from the concessions and in exchange – protects its operations and continuity. This is why they are difficult to tackle. This is an example of the problematics that African policy makers must deal with when taking a position in committing in TFA provisions. It may be a whole lot more complicated than what it looks like.

The diagram above shows the association of share of the provisions that have been covered by A-Category notifications and the Corruption Perception Index (CPI) score of the countries. For African countries the correlation is moderate (correlation co-efficient: 0.42) but for Asian countries the association is strong (correlation co-efficient: 0.73). The association of the two variables is understandable: the less corruption a country has (the higher the CPI rank is), the more reforms the government is in liberty to conduct (the higher coverage of TFA as A-category Notifications).

We need to better understand the underlying reasons why policymakers cannot let reforms take off. Traditions, corruption and outdated structures are usually the biggest obstacles. These cannot be overcome by merely providing short-term technical assistance and bench-marking the world best practices but only strong political leadership can make the change. Developing partners should raise this topic on the highest political level and “live together” through the reforms with the counterparts.

The Northern Corridor (Kenya, Uganda, Rwanda) provides an encouraging example how multiple reforms can be carried out in very short time. Only two years ago it took staggering 27 days to transport a container from Mombasa Port and deliver it in Kigali, Rwanda. Today it takes only seven days. The improvement was enabled by series of reforms, which were championed by the Heads of States of the Corridor member countries. The example proves that major improvements can indeed be achieved in very short time. On the other hand, even with the most sophisticated instruments, reforms will not succeed if there the high-level ownership is not there. Author: Tapio Naula

South African Customs has introduced non- intrusive inspection (NII) capability at the Port of Cape Town. The recent completion of an impressive relocatable scanner facility within the port precinct will now afford state of the art inspection services for customs targeted consignments for inspection. This is the third X-Ray scanner installed and operated by the South African Revenue Service (SARS).

In March 2008, a mobile scanner was implemented at Durban Container Terminal. More recently, a relocatable X-Ray Scanner was implemented adjacent to the container terminal in Durban to allow for improved capacity and efficiency.

The new facility in Cape Town not only extends customs risk and enforcement capability in the use of such technology but acts as a deterrent against any possible threat posed by international cargoes entering or leaving the country’s ports of entry.

In addition to the new x-ray inspection hardware, SARS has developed bespoke support to allow scanned images to be reviewed remotely – away from the port area – affording customs increased flexibility, allowing image analysis experts elsewhere in the country to provide almost real-time analysis and support for the inspection team. The approach also meets SARS differentiated inspection case methodology which ensures that case finalization and cargo release does not rest with a single customs official.

Remote screening analysis is a practice that has already been pioneered in Europe with great effectiveness in recent years.

The benefit of non-intrusive inspection (NII) allows customs to ‘see whats inside’ the container, vehicle or tanker without having to break the seal. All of this can be done in a few minutes. It forms part of Customs overall approach to minimise the time taken to conduct a customs intervention and latent cost, damage and theft which plague conventional physical inspection of cargoes.

The new inspection site also enables SARS to increase its participation and effectiveness in the US Container Security Initiative (CSI) which was launched in Durban, December 2003. Under the CSI Agreement, SARS officials together with US Customs & Border Protection Agency (USCBP) officials – co-located at the Port of Durban – analyze and mitigate risks relating to any containerised cargo destined to ports in the United States.

Credit to Indresan Reddy (Customs Business Systems) for the photographs.